Blog Archives

Why opt for a middleman when arranging property finance?

07.11.2013

With property prices continuing to rise and activity in the housing market flourishing, Anderson Harris is busy working through some very complicated mortgage applications. Many of these deals would not have stood a chance of being considered without the level of knowledge and perseverance that is being applied to them.

Why are we telling you this?

Many of our clients are wealthy but typically short of the time needed to demonstrate that wealth to the point where banks are persuaded to lend to them. So while on the face of it a client’s wealth should convince a lender that they are a good risk, some element of proof is required.

Private bankers are busy and do not always have time to assess new enquiries properly if they are approached directly.  Fortunately the bankers know us well and know that if we introduce a client to them, we have already done our due diligence. If we propose a client to them, it’s because we believe they are the best fit for that client.

We spend a lot of time with clients, really getting to understand their financial position. Clients do not always want to provide documentary evidence of their assets, while for banks this is pretty much a prerequisite. We are able to draw the relevant insight from our client discussions and present this in a manner which is acceptable to the bank. We cut down on time wastage both for the client and the bank. We tease out the salient financial points, so that the banks feel more comfortable.

The value of our broking skills and connections with the private banks are making some tricky-looking applications a possibility and at the same time increasing the success ratio of obtaining a mortgage for our clients, with less hassle.

It is not only the private banks who are worth considering. A number of high-street lenders are producing large loan offerings which may suit the client better. We can advise whether this is the case and direct your application accordingly. Contact us for more information.

Adrian Anderson
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Adrian Anderson

Private bank mortgages – are lenders tightening up?

22.10.2013

Anderson Harris was quoted in the Financial Times at the weekend talking about private bank mortgages and whether lenders are tightening their criteria, particularly in relation to their appetite for dry lending. Reportedly, SG Hambros is no longer doing dry lending but insisting that borrowers must transfer assets under management (AUM) before it will lend.

While SG Hambros will in fact still offer dry lending to new clients where there is a genuine convertible AUM opportunity in the short to medium term, some private banks are said to be tightening their lending criteria, which may cause concern for wealthy clients intent on borrowing. Do buyers  requiring large loans, who don’t wish to put all their assets with the same lending bank, face a dilemma over the coming months? Are fewer banks offering dry loans?

Why has this private banking change come about?

Some private banks have a target for dry lending and allocate a specific tranche of funds for this purpose. Once these targets have been reached or the tranche is exhausted, they may pull back from the market, as any organisation might once it has  reached a target objective.

A private bank is unlikely to entertain a new client if there is no credible opportunity for AUM, or a wealth management relationship, at least in the medium term. The exception to this is if the lending bank has access to Funding for Lending scheme monies.

At Anderson Harris we are working on a number of cases where there is no immediate AUM but the clients’ circumstances are such that there is a realistic chance these will follow, such as sale of a business or property. A prerequisite of a number of private banks is that clients transfer cash or other assets to them immediately on being granted a mortgage, in order to secure cheaper home loans, or have a condition that the interest rate will rise after say 12 months, if the cash or investment commitment is not followed through.

What can wealthy borrowers expect in the future?

Some private banks require a specific level of AUM they target from day one, while others take a more pragmatic view. It is worth bearing in mind that private banks have different balance sheets, depending on their locations and jurisdictions. So some of the private banks in the Channel Islands, Geneva or Monaco may be able to arrange a dry lend for the right client even if the same bank in London has reached its limit on dry lending.

The high-street banks are increasing their appetite in the large-loan market but as soon as the client’s circumstances fall slightly outside the norm, they generally can’t assist. The private banks then come into their own. Clients who would typically struggle with the high-street banks are those from overseas with low incomes, but who are asset rich and often over the age of 60.

For the right client, the private banks continue to offer competitively priced lending, typically on a Libor, or base-rate-linked basis, over a five-year renewable term. The best terms are typically 2 to 2.25 per cent over Libor for a loan backed with an element of AUM, rising to 3 to 3.5 per cent over Libor for a dry lend. If there is no immediate prospect of AUM, but a very realistic prospect in the medium term, then you could be looking at 2.75 to 3 per cent over base rate.

While high-street lenders continue to offer some of the most competitive rates for homeowners seeking large mortgages – with two-year fixes available at under 2 per cent – private banks offer a more flexible alternative. They will typically be a better option for people with more complex income streams, such as bonuses, trusts and offshore incomes.

In summary, it is a good idea to speak to a property finance specialist, such as Anderson Harris, who understands the day-to-day workings of the various private banks to ensure you so get the best solution for your circumstances.

Jonathan Harris
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Jonathan Harris

Private bank mortgages: better than the high street?

18.03.2013

Yesterday’s Sunday Times took at look at whether wealthy borrowers are turning to high-street lenders for large loans. The article concluded that private banks were being spurned due to strict terms, namely the need to transfer assets under management in order to satisfy the bank’s requirements to build more than simply a lending relationship.

The Sunday Times points out that there are some very cheap rates available on the high street, such as Chelsea Building Society’s two-year fix at 1.74 per cent with £1,825 fee, for those with a 40 per cent deposit. Chelsea will lend up to £5m directly from branches, while Woolwich has also increased its maximum loan size to £2m, up from £1.5m.

My fellow director Adrian Anderson was quoted in the article, saying: ‘Private bank mortgages often have conditions that might not be in the contracts of conventional mortgages.’ This is true of the private banks but it is also true of high-street lenders. If many of those borrowers with regular high-street mortgages were to read the small print they too would be spooked.

For example, Bank of Ireland recently decided to aggressively hike the margins on its base-rate tracker mortgages, despite no movement in the Base Rate. The Bank was able to exploit a loophole in the small print that many borrowers would have been unaware existed.

Private bank mortgages: room to negotiate

While private bank contracts can come with lots of clauses, this is often only a starting point. It is up to the broker to negotiate with the bank on behalf of the client to remove or alter some of the clauses until a point is reached where everyone is happy. It varies considerably from client to client: we recently had a client who was offered a deal with more clauses than usual but he made an informed decision to proceed as the pricing was so good.

Many of the clauses are in place to prevent a new client taking a mortgage and then not making any attempt to develop a relationship. Many private banks feel they have gone too far down the lending route since the financial downturn and are trying to claw back more of a relationship with the client.

So does this mean the high street is now a better option for large mortgages? We’ve said before that it might be but in our experience of large loans, it usually isn’t. This is mainly because wealthy borrowers need certain things that high-street lenders are not good at delivering:

1) Wealthy borrowers often need speed of service – something never guaranteed and often not available via high-street lenders.

2) Wealthy borrowers need a lender who understands their complex income streams – something the high-street lender which doesn’t take into account bonuses, share dividends or retained profits in a business, simply doesn’t.

Interest-only mortgages

3) And wealthy borrowers often need interest-only mortgages – again, something the high street does poorly. For example, Halifax will lend up to £7.5m but does not offer interest-only on larger loans. This is a typical stance on the high street.

We’re not convinced those borrowers requiring large loans are shunning private bank mortgages in favour of high-street lenders. But it is always good to have some healthy competition.

 

Jonathan Harris
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Jonathan Harris